In 2020, a leading U.S. credit rating agency issued a warning to President Gotabaya’s government in Sri Lanka, stating that the country’s state revenue was insufficient to meet debt repayments.
That same year, in 2020, the U.S. State Department released an Investment Climate Statement on Sri Lanka. It noted that foreign direct investment (FDI) had declined in 2019, and the situation had worsened in 2020, pushing Sri Lanka towards a severe economic crisis. It also highlighted that Sri Lanka lacked a favourable environment for investment.
Despite these warnings from rating agencies and the U.S. State Department, and the opposition at the time Gotabaya’s government ignored them completely. Exactly two years later, Sri Lanka went bankrupt. Not only Gotabaya but the entire Rajapaksa family was forced to flee from their presidencies and premierships.
Recently, the U.S. State Department issued a similar investment statement on Anura’s government. It stated that Sri Lanka is currently under a leftist administration, making it an unsuitable destination for foreign investment. Just as during Gotabaya’s era in 2020, the U.S. State Department highlighted that foreign investment has declined under Anura’s government as well.
About two weeks later, the World Bank released a statement on Sri Lanka, noting that while foreign investment should be at around 1.5% of GDP, it currently stands at a low level of about 0.5%. The World Bank also warned that Sri Lanka’s economic recovery remains incomplete and highly vulnerable.
The World Bank reminded Sri Lanka that foreign investment is essential to build up foreign reserves needed for debt repayments by 2028.
The U.S. State Department states that there is no suitable environment for investment in Sri Lanka. This is an adverse report for the country. While the World Bank says the economy has not received the foreign investment required for recovery, the U.S. State Department stresses that Sri Lanka lacks an investor-friendly climate.
Recently, in Parliament, the Committee on Public Finance (COPF) summoned the Public Debt Management Office to inquire about this year’s debt installment. The media reported that the officials of the Debt Management Office were unable to provide a clear answer on the exact amounts due. At that point, COPF Chairman Harsha de Silva reportedly expressed his displeasure at the officials, questioning:
“So, does this mean the government doesn’t even know the debt installments due this year?”
“Then how will the government begin repaying the debt in 2028…?”
That is the issue at hand. If Sri Lanka fails to meet its repayment commitments in 2028, the only option left would be to once again declare bankruptcy.
Looking at it that way, Sri Lanka is standing on a volcano. Anura’s government, apart from continuing Ranil’s IMF program, has not implemented any other economic strategy.
The agreements Anura’s government reached with the U.S. to reduce tariffs have still not been implemented. If these agreements are not enforced, the U.S. has greater room to increase tariffs on Sri Lanka. The largest foreign investment that came after Sri Lanka’s bankruptcy—the Adani wind power project—was canceled by the government. The U.S. Investment Climate Reform also criticized the cancellation of the Adani wind power project, noting that this discouraged foreign investment.
This shows that the government has no real program for foreign investment. Instead of focusing on investment, the government is trying to borrow money at high interest rates from China to complete the Mirigama–Kadawatha section of the Kandy Expressway.
Initially, Anura requested loans from Japan for this expressway. However, the Japanese ambassador to Sri Lanka stated that Japan was not prepared to lend until the Sri Lankan economy stabilized, citing the risk that giving more loans to a country already unable to repay debt could push it back into bankruptcy.
The government should secure foreign exchange to meet the 2028 debt repayments before building expressways. Sri Lanka went bankrupt because of borrowing for these highways. This shows that just like past governments, the current one too is playing games with the economy.
The same was true of Chandrika’s government, which came to power in 1994. It simply continued the economic program that the UNP government had carried out for 17 years, without introducing any new economic policies. That 17-year program continued through 1995, 1996, 1997, 1998, and 1999. However, since no new measures were added to increase state revenue or foreign investment, an economic crisis emerged in 2000, and by 2001 the economy was in deficit. The economy collapsed, and the government had to leave office.
The economy built by J.R. and Premadasa lasted only about five years without new policies being added.
Ranil’s IMF program is not one that can last five years either—it is fragile. The Sri Lanka–IMF agreement is set to expire in 2027. It is scheduled to end then because the IMF’s preliminary conclusion was that by 2026 Sri Lanka’s economy should return to the level it was at before 2019. However, the World Bank has said that Sri Lanka will need major reforms to bring the economy back even to the state it was in by 2018.
Yet the government shows no sign of implementing such reforms. It has no program to attract foreign investment. Foreign investment is not flowing in. J.R.’s government in 1977 established free trade zones specifically to bring in foreign investment. The JVP said at the time that free trade zones were selling the country to the West and that Sri Lanka’s land and labor were being sold off cheaply.
When Premadasa came to power in 1988, he launched the 200 garment factory project to attract foreign investment. At that time, the JVP and the opposition claimed that Sri Lankan youth were being exploited in garment factories for the West.
It was the JVP that once protested against foreign investment in Sri Lanka. But today, they themselves need foreign investment to start repaying the 2028 debt and to rescue the economy from bankruptcy. Without foreign investment, Anura’s government will face the same fate as Gotabaya’s government.
There is a saying: “Karma is a Bitch that follows you.” Today, the JVP too is being chased by that bitch called karma.
